The risk arbitrage deal pool continues to diminish for want of deal inflow as the mergers and acquisitions market sputters in the face of extreme economic uncertainty.

The J.P. Morgan Chase & Co. special situations desk last week tracked 40 U.S. transactions for an aggregate market capitalization of targets of $298 billion. That was down 27% from 55 deals at the beginning of September for a total target value of $407 billion, also a 27% drop. Considering this tally includes the $29 billion in equity value of the buyout of BCE Inc. and the $50 billion acquisition of Anheuser-Busch Cos. by InBev SA, not to mention the uncertain $6.9 billion buyout of Huntsman Corp. by Apollo Management LP's Hexion Specialty Chemicals Inc., the deal pool may soon dip below the $200 billion mark. These numbers are down about 60% from the latter part of 2007.

As the deal pool tightens, though, so are spreads beginning to normalize after the tumult of the past few months. But credit market concerns hang over some transactions, and not all deals without substantial credit exposure, including some stock transactions, are getting done. Call it the reverse hostile.

Corn Products International Inc. |CPO
Bunge Ltd. |BG

Deal value $1.67 billion

Spread 11/11/08 -$2.90, or -11.5%

In the past week, the board of Corn Products International Inc. withdrew its recommendation to shareholders for its merger with Bunge Ltd.

The all-stock swap suffered after Bunge shares fell from more than $110 at the announcement of the deal to less than $30. Based on the exchange ratio, the deal now values Corn Products significantly below its share price on a fundamental basis.

The Corn Products move may have been an effort to get Bunge to readjust the exchange ratio, but Bunge declined and moved to terminate the deal instead. Corn Products must reimburse Bunge for up to $10 million in fees.

Alpha Natural Resources Inc. |ANR
Cliffs Natural Resources Inc. |CLF

Deal value $3.01 billion

Spread 11/11/08 $17.34, or 68.3%

Similarly, the long-troubled coal and metals merger of Alpha Natural Resources Inc. with Cliffs Natural Resources Inc., formerly Cleveland-Cliffs Inc., is in its last gasp. But the merger may have another month to struggle.

The cash-and-stock deal valuation has cratered along with the current outlook for steel production in a manner that has favored Cliffs Natural's share price less than Alpha Natural's.

The transaction has been under attack by Cliffs Natural's largest shareholder, Harbinger Capital Partners, since it was launched in July.

At that time of high-flying steel and metallurgical coal stocks, Harbinger wanted Cliffs Natural to be a seller, not a buyer. Harbinger lost an attempt to bypass Ohio control share acquisition law to boost its 16% voting stake in Cliffs. The deal requires a two-thirds majority approval by shareholders.

Alpha Natural recently shifted that battle to one over the shareholder vote date in the Delaware Court of Chancery. Alpha Natural will hold its vote Nov. 21, but Cliffs pushed its vote to Dec. 19 to give itself more time to solicit votes in favor of the deal.

The Delaware court will allow the Cliffs vote delay, but Alpha Natural apparently will go forward with its Nov. 21 vote and presumably not alter its recommendation to shareholders in favor of the transaction. However, Alpha Natural may figure that even if its shareholders approve the transaction, Cliffs Natural will lose its vote and find itself forced to pay a breakup fee.